Mobiles and mini MP3 players could hold 60GB of data in the next few years, using a century-old recording process.
Tiny hard drives that hold more data are very desirable for gadgets
Hitachi has said it can fit 230 gigabits of data per square inch on a disk using "perpendicular recording"
The storage industry currently makes hard drives using longitudinal recording, which is reaching its limit.
Hitachi's work means one-inch drives will see a six-fold increase in storage while 3.5inch drives could hold up to a terabyte of data.
One terabyte is the equivalent of 1,024GB - enough to hold more than 240,000 songs at the standard encoding rate for digital music files.
Perpendicular recording was pioneered by the late 19th century work of Danish scientist Valdemar Poulsen, who demonstrated magnetic recording with his telegraphone.
He is widely thought to have been the first to experiment with magnetically recorded sound using perpendicular methods.
The technology industry wants smaller hard drives that hold more information to go into all kinds of digital devices like portable music players.
As storage prices come down and data capacity increases, more portable devices are coming out with built-in hard drives, such as music and media players from Apple, Creative Labs, Archos, iRiver and others.
Jun Naruse, chief of Hitachi Global Storage Technologies, said the industry was on the "cusp of the most significant hard drive technology transition of the past decade".
"Consumers' demand for storing more data on smaller devices has provided a strong impetus for us to pursue perpendicular recording with a greater sense of urgency," he said.
Last month, Samsung unveiled its first i300 mobile, for instance, with a 3GB internal hard drive for storing MP3 tracks and images.
Analysts predicts that the number of hard drives in consumer electronics gadgets could grow from 17 million in 2003 to 55 million in 2006.
Conventionally, the industry has used a technique called longitudinal recording.
With this method, bits of data are arranged horizontally on the recording medium.
But there are limits to this process, which are fast being approached.
The biggest problem hard drive technology faces is what is called the superparamagnetic effect.
This is when microscopic magnetic grains on the disk get so tiny that they interfere with one another.
Often this results in reduced ability to hold their magnetic orientations. When this happens, bits of data can become corrupt.
Perpendicular recording methods overcomes the problem and aligns data bits vertically, perpendicular to the disk.
This means more space on a disk for more data and so higher recording densities can be achieved.
Small, high density hard drives mean more room for storage
Hitachi achieved the 230 gigabits per square inch density by reducing distance between the read/write head and recording medium to 10 nanometres - 1/10,000th of a human hair.
Hitachi said it would start using perpendicular recording in the next generation of its products, in 2007, but it said its true potential would be realised in the 200 plus gigabit per square inch range.
Over the next five to seven years, it said, perpendicular recording could mean a 10-fold increase in data densities over longitudinal recording.
This means its one-inch drive technology could store 60Gb of data.
Apple's iPod uses hard drive technology, which proved a big selling point for the company because it meant people could put their entire music collections, thousands of tracks, onto one device.
Other digital music players and digital cameras, for example, use flash memory - like SD cards - on which to store files.
Last year, Toshiba became the first major manufacturer to come out with a 1.8-inch drive holding up to 40GB, which is used in the iPod and other MP3 players.
It also has a 2Gb 0.85-inch hard drive and its 4GB 0.85-inch drive is planned for mid-2005.
Hitachi also announced earlier this year its "Mikey" hard drive. It says it is the smallest one-inch hard drive with the highest storage capacity, between 8-10GB.
Hitachi expects to ship its first perpendicular recording product in 2005 on a 2.5-inch hard drive, used in notebook computers and handheld devices.